The chair of the Southwest board of directors has agreed to retire following a meeting with activist investor Elliott Investment Management, who have been calling for sweeping changes to the airline's leadership team.
Since revealing in June that it had acquired a significant stake in Southwest, the team at Elliott has repeatedly called on Executive Chairman Gary Kelly and current Southwest CEO Bob Jordan to step aside after blaming them for Southwest's recent lackluster financial performance.
On Tuesday, Kelly confirmed that following a face-to-face meeting with Elliott at the company's headquarters in New York City, he had acquiesced to their demands to retire immediately after Southwest's 2025 annual meeting.
The airline has also agreed to consider up to three of Elliott's preferred choices to replace six independent directors who have voluntarily agreed to step down in November.
Southwest is, however, remaining firm in its belief that current CEO Bob Jordan is the right person to stay at the helm of the company.
Elliott has repeatedly called for Jordan's scalp, and the company is yet to publicly respond to Southwest's show of goodwill to "engage constructively" and achieve a "collaborative resolution" to its demands for a significant governance overhaul.
"In our meeting with Elliott yesterday, we shared a specific framework to address its concerns about corporate governance and performance, and we are continuing to engage constructively toward a collaborative resolution in the near term," Kelly wrote in a letter to shareholders on Tuesday.
But Kelly dismissed the notion of replacing Jordan when Southwest was implementing major changes to its business model.
|The added component of leadership change in the middle of Southwest's largest transformation to date is simply a risk that the Company and its Shareholders do not need and cannot afford," Kelly told investors. "This Board will hold Bob and his leadership team strictly accountable for executing these plans and delivering Shareholder returns."
Just weeks after Elliott made its stake in Southwest public and called on the company to shake up its leadership team and business model, the airline announced it would introduce assigned seating, red-eye flights, and premium seating options for the first time in its history.
Elliott went on the offensive, accusing Southwest of doing "too little, too late" and only making changes in response to its criticism.
While Southwest says it is trying to work constructively with Elliott, the board of directors has also approved a so-called'poison pill' which is designed to stop Elliott from rapidly acquiring more stock in Southwest to implement a hostile takeover.
Elliott has publicly said what it would change at Southwest, although some analysts fear that the company would like the airline to start charging for checked-in luggage and introduce even more restrictive basic economy fares to compete with rivals.
In a sprawling five-page open letter sent to Southwest shareholders last month, Elliott set out its case for ousting the airline's existing senior leadership team with its own pick of directors.
Amongst Elliott's picks are the former CEO of Virgin America, David Cush, former group president of Marriott International, Dave Grissen, and the former CEO of Canadian airline WestJet, Gregg Saretsky.
The other proposed board members are Michael Lawley, who held the positions of CEO, COO, and CFO at Europe'sRyanair; former senior Department of Transportation official Sarah Feinberg; former Chapter 11 trustee of Hawaiian Airlines Josh Gotbaum, serving Meta board member Nancy Killefer, former CEO of Air Canada and CEO of United Airlines Robert Milton, the former head of technology at JetBlue Eash Sundaram and the serving chief technology officer at retail banking company NCR Atleos Patty Watson.
Matt's take
Negotiations between Southwest and Elliott really seem to be heating up and the airline clearly realizes that it will need to make major concessions if it is to stave off a hostile takeover from Elliott.
At the moment, it really seems as if Southwest thinks that the current proposed changes to its business model are enough to turn its fortunes around and its really digging its heels in about keeping Bob Jordan as CEO.
The problem with Southwest's existing leadership team is the perception that they aren't open to change and that they believe the airline must continue doing things as it always has because that is what made the airline so successful for so many years.
The issue now is that Southwest seems like it has lost its identity. The airline no longer offers particularly cheap fares, and it's failing to keep up with rivals that are successfully segmenting different passenger markets and offering them a compelling product.